Asian Ethylene Market Uncertainty Continues

THE outlook for ethylene spot market availability remains muddled as a few weeks ago due to higher freight rates and uncertainties surrounding Middle East natural-gas feedstock supply.

Freight rates for all Middle East, Asia and West Mediterranean routes were higher in August than their 12-month average, according to Singapore shipping broker Braemar Quincannon.

The Middle East Gulf-Southeast Asia route was, for example, $12.92/tonne higher at $225//tonne and the Middle East Gulf-West Mediterranean route $17.50/tonne higher at $310/tonne.

“The September 2008 financial crisis led to orders for new vessels being cancelled. Since then a combination of the economic recovery and an increase in spot ethylene availability has significantly tightened the market,” an ethylene trader told the blog yesterday.

We have heard that some new ethylene vessels are under construction in Asia and in a later post, when we have checked this out, we will let you know what the market believes will be the impact on freight rates.

But a further problem could remain even after any new ships come into operation: Ethylene carriers are being tied-up in more long-haul journeys, creating repositioning problems. We need a clearer explanation of the reasons for this (all we have been told so far is that this is the result of more cargoes being delivered to Northwest Europe from the Middle East) and so – again – we will get back to you.

What we can say with certainty is that gas feedstock supply in Saudi Arabia is still constrained because of the OPEC oil-quota issue.

Ethylene exports from Al-Jubail remain at zero (they have totalled 350,000-450,000 per year over the last few years, we have been told).

However, the Saudi Kayan Petrochemical Co cracker at Al-Jubail – which was brought on-stream in late July – has a C2s surplus of 500,000 tonne/year until all of its downstream units are running properly, we understand. Whether this ethylene will exported or supplied to other complexes in Al-Jubail is a moot point.

The Iran wild card remains wilder than ever: Ethylene exports have recently increased because of the closure of styrene capacity.

Styrene capacity has shut down because Iran, unable to import gasoline due to tougher sanctions, is making more of its own gasoline by blending increased quantities of aromatics (thereby, taking benzene feedstock away from styrene).

We will have to wait and see whether officially-reported new investment in gas- processing capacity and increases in electricity costs prevent the usual winter-time reduction in feedstock supply to petrochemicals.

During the winter, gas is diverted to power stations to meet greater demand for electricity for heating.